Barron’s Weekend Summary: For decades, California has leveraged its natural charms and dynamic economy to lure ambitious people
Cover Story:
-Barron’s tributes California. For decades, California has leveraged its natural charms and dynamic economy to lure ambitious people. Technology, aerospace, and cultural leadership—be it movies, music, or the ethos of marijuana and West Coast fashion—all set the state apart. From Silicon Valley to Hollywood, California maintains economic advantages that rival states may never match.
Interview:
-Robert Dietz, chief economist for the National Association of Home Builders, has been traveling the nation in recent weeks, offering his insights to policy makers, trade associations, and industry-conference attendees from Ohio to Alaska. Dietz leads a team of a dozen economists overseeing the trade group’s forecasts, policy research, and surveys, including the closely watched NAHB/Wells Fargo Housing Market Index, or HMI, which gauges home-builder sentiment and sales expectations each month.
Dietz recently spoke with Barron’s about the outlook for home construction, prices, and affordability, and regional sales trends. An edited version of the conversation follows.
Tech Trader:
-Oracle is using the cloud to drive new growth in the company’s application and database software businesses, while also moving to take on the three giants in the public cloud— Amazon.com or Microsoft, and Alphabet through its Google Cloud. Oracle is getting traction on all fronts, and it’s driving growth rates the company hasn’t seen in more than a decade. By mid-December of last year, the stock had rallied 70%, briefly eclipsing $100 a share. But Oracle shares have since round-tripped back to the low 60s. The stock hasn’t been immune to the market selloff. But there is a more specific issue, too.
The Trader:
-Companies like Nike and Micron Technology have flagged inventory issues in recent weeks, while even used cars are getting easier to find. Too few morphed into too much, and now goods prices are falling as companies are forced to discount what they have to move it off the shelves. In an otherwise hot inflation report this past week, both apparel prices and used-car prices declined. The oversupply is partly a response to supply chains finally getting back to something closer to normal.
-Investors seemingly can’t stop trying to pick a stock market bottom, no matter how bad the news—and it continues to backfire. The day for a real bounce, however, may be coming soon. This past Thursday, September’s consumer inflation report came in much hotter than expected, with the core CPI hitting a 40-year high. The initial response was exactly what you’d expect—the S&P 500 traded down as much as 2.4%—but then it started rallying…and rallying. The index finally finished the day up 2.6%, the first time that’s happened since 2008.
Features:
-This week’s worse-than-expected inflation report led to turmoil in more than one market, but you only read about one of them. The market that got all the headlines was in stocks, since in the wake of the latest news about inflation the equity market experienced one of its biggest intraday swings in history. After plunging more than 500 points right after the report was released, the Dow Jones Industrial Average rose more than 1,300 points to close up more than 800 points.
-The Biden administration wants credit for the huge 2023 hike in Social Security benefits, announced Thursday, as well as the planned cut in Medicare Part B premiums. “For the first time in over a decade, seniors’ Medicare premiums will decrease even as their Social Security checks increase,” said press secretary Karine Jean-Pierre in a statement on Wednesday. “This means that seniors will have a chance to get ahead of inflation, due to the rare combination of rising benefits and falling premiums. We will put more money in their pockets and provide them with a little extra breathing room.” However, the 2023 Social Security benefit hike is nothing more than a cost-of-living adjustment to try to keep up with inflation, not get ahead of it. The real terms “increase” in benefits is precisely zero.
European Trader:
-UK Chancellor of the Exchequer Kwasi Kwarteng has been fired over his handling of a recent economic crisis that saw bond markets crash.
He left an International Monetary Fund gathering in Washington earlier than planned and was promptly relieved of his position in a meeting with Prime Minister Liz Truss when he arrived back, making him the second-shortest serving Treasury chief in UK history. Truss named former Foreign Secretary Jeremy Hunt as his replacement on Friday. Kwarteng’s dramatic departure leaves the British government in dire straits. He and Truss came to power on the back of promises to cut taxes and shrink the size of the state.
Emerging Markets:
-Limited and manageable. That’s how Taiwan Semiconductor Manufacturing CEO C.C. Wei assessed the fallout for his company from sweeping new US government restrictions on chip sales to China. Wei’s typically terse comment came while announcing third-quarter earnings this week. Markets aren’t so sanguine. Taiwan Semi shares have slumped by 11% since President Joe Biden’s Commerce Department unveiled its broadside Oct. 7. That’s in line with the Philadelphia Semiconductor Index, which charts the industry globally.
Commodities:
-The world needs metals like copper, iron, and cobalt, but investors don’t seem to need mining stocks. They should reconsider. Investor reluctance is understandable. Why get exposure to an industry whose profits hinge on the health of industrial activity when the global economy seems headed for a downturn that would probably send metal prices lower? Yet a case can be made for many resource companies. They have robust balance sheets with little or no net debt, still-solid earnings, ample reserves, and reasonably good dividends. That’s a good setup for diversified miners BHP, Rio Tinto, Glencore, and Anglo American; copper producer Freeport-McMoRan; aluminum maker Alcoa; and gold miners Barrick Gold and Newmont.
Streetwise:
-Jack Hough looks at airline stocks: Some airline stocks trade at five times projected earnings. Why so expensive, you might be wondering. The group’s reputation on capital preservation at the moment ranks somewhere between damaged and UK pension manager. An index of US airlines is down 42% in a year, more than double the beating absorbed by the broad US market. “They historically disappoint because they buy aircraft at the top of the market and take delivery in a recession or at the bottom of the market,” says Cowen analyst Helane Baker. “And this time they can’t do that because they can’t get the planes and they don’t have the people.” Baker is selectively bullish about the airline sector, which she concedes is not a favorite group for investors. This past week she upgraded Delta Air Lines to Outperform after its third-quarter report showed record revenue. She predicts 75% upside there. Her other picks include United Airlines, Sun Country Airlines and Alaska Air Group.